trade binary options

Trading Binary Options Complete Guide To Binary Options Success

This book covers basics of binary options trading and how to trade profitably. Moreover the book also includes basics of different trading concepts including technical analysis, fundamental analysis, money management and much more.

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Disclaimer

CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN

LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT

REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE

RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN

MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL

ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT.

NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE

PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

Commodity Futures Trading Commission Futures and Options trading has large potential

rewards, but also large potential risks. You must be aware of the risks and be willing to accept

them in order to invest in the futures and options markets. Don't trade with money you can't

afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No

representation is being made that any account will or is likely to achieve profits or losses similar

to those discussed on this web site. The past performance of any trading system or

methodology is not necessarily indicative of future results.

All information on the website or any e-book purchased from the website is for educational

purposes only and is not intended to provide financial advice. Any statement about profits or

income, expressed or implied, does not represent a guarantee. Your actual trading may result in

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Index

1. Introduction To Binary Options

i. What Are Binary Options

ii. Binary Options Trade Example

iii. Advantages of binary options

2. Trading Binary Options

I. Introduction

II. The Underlying Asset

III. Forecast

IV. Expiration

V. Determine Your Investment

3. Fundamental Analysis

I. Introduction

II. Monetary Policy and Fiscal Policy

III. Balance of Payment

IV. Economic Releases

4. Technical Analysis

I. Introduction

II. Japanese Candlestick

III. Support And Resistance

IV. Trend Lines

V. Channel

VI. Common Chart Indicators

VII. Multiple Timeframe Analysis

5. Money Management

I. Introduction

II. Learn To Protect Capital First

III. Position Sizing

IV. Common Mistakes



6. Putting It All Together

I. Create a Business Plan

II. Maintain A Trading Journal



1. Introduction To Binary

Options



1.1 What Are Binary Options

Binary Options are exciting new type of investment. Rather than buying an asset,

investor speculates the price direction of the asset. Binary Options are also called

digital options, all-or-nothing-options or fixed-return-options (FRO). As the name

implies there are two possible outcomes to a binary options trade, called In-the-

money and out-of-the-money. In simplest terms, if the option expires with the

price in forecasted direction then the option expires in-the-money, else out-of-

the-money.

There are two major types of binary options:

cash-or-nothing binary options, and asset or nothing binary options.

Cash-or-nothing binary options are more common, in which if the options expires

in-the-money investor earn certain amount of cash. Asset-or-nothing pays the

value of the underlying security if the options expires in-the-money.

A binary options trade on a typical platform might look like:

An investor with an outlook that the XYZ stock price will end higher than the

current price at the end of the day, thus he purchase XYZ stock binary option for

$100. If his outlook turns out to be correct he will gain 70%-90% over his

investment.



1.2 Binary Options Example

There is little difference in binary options contract traded over NADEX or CBOE.

The basic concept remains same when it comes to trading binary options. The

following example describes sample cash-or-nothing type binary option trade.

Call Trade Example

Let’s say the crude oil is trading at $89.299/Barrel on 18:08 15-April-2013 , the

investor believes that the price will end higher (appreciate) by an hour then the

current $89.27 (called Strike Price). In order to take advantage if the price

appreciates the trader will place Call trade, set the option expiry to 1 hour (19:00)

and finally set the amount he wants to invest in this case say $100.

The trades have two possible outcomes.

Outcome 1 Outcome 2 Option Expires Above Strike Price 89.299 (In-The-Money)

Option Expires Below Strike Price 89.299 (Out-Of-The-Money)

Payout $170 Payout $15



Put Trade Example

Say the EURUSD is trading at 1.30125 on 18:25 15-April-2013, now the investor

believes the price will fall. In order to take advantage if the price decline the

trader will place Put trade, set the option expiry to 1 hour (19:00) and finally set

the amount he wants to invest in this case say $100.

The trades have two possible outcomes.

Outcome 1 Outcome 2

Option Expires Below Strike Price 1.30962 (In-The-Money)

Option Expires Above Strike Price 1.30962 (Out-Of-The-Money)

Payout $170 Payout $15



1.3 Advantages of Binary Options

Binary options offers numerous advantages over other sort of trading, below are

few of the advantages offered to binary options traders.

Simplicity Above all the advantages offered by binary options is its simplicity to

understand and trade options. Less detailed knowledge is required of an asset to

profit from its price change. In binary options Profit depends on price change

rather than the difference in price.

Calculated Risk Due to very nature of binary options investor is aware of acute

risk per trade. The risk is limited to the invested amount per trade.

High Return The profitability depends on options expiring in or out of the money,

rather than price difference. Binary options generally yield 70% - 80% in relatively

small time.

Small Investor Friendly Binary Options traders’ buys contract other than the asset

itself, which allows larger audience to trade who would otherwise would be

restricted by the high prices.

Volatile Market Advantage Traders have great advantage when they trade binary

options in a volatile market conditions. Regardless of drastic swing in the market,

binary options have fixed returns. While traditional investment could incur huge

losses.



2. Trading Binary Options



2.1 Introduction

Binary trades have 4 key features, i.e.

Underlying Asset

Forecast

Expiry

Risk

It is important that traders understand these four key elements as they are vital

for trading successfully. Each aspect is explained in the upcoming sections.



2.2 Underlying Asset

When trading binary options you are not actually buying or selling the actual asset

itself but rather predicting the direction of the underlying asset. Rather than

taking ownership of the asset you just take position for or against their

movement.

However it is very important that you understand the peculiarities of the

underlying asset, you are trading binary options of. Each financial instrument has

different factors which affects its movement.

Global market divide assets into 4 groups namely Currencies, Commodities,

Stocks and index (indices). There are further numerous sub groups; each of the

group belongs to association of exchanges or markets. Most of the people are

familiar with New York Stock Exchange, with stocks such as Google, Microsoft and

HSBC traded on its floor. Another example of exchange is foreign exchange

(Forex) where Global currencies are traded. In a similar fashion Commodities are

also traded in their respective exchanges.

Finally indices are made up of bucket of preselected stocks. Buying an index is

similar to buying the entire share that makes up that index, as well as the value of

the index move up and down based on the value of the selected stocks. Few of

the famous indices are S&P500 or the Dow Jones, in US or FTSE in UK and DAX in

Germany.

Binary Options allows you to trade options for different groups of assets including

Foreign Exchange (Forex), Commodities, Stocks and Index (indices). Apart from it

you are only limited to stocks from single exchange or country, but can trade

stocks from Asia, Europe and USA at the same time.



2.3 Forecast

Another major element of binary options trade is Forecasting either the price will

end above or below. Your forecast will determine the trade type you should

enter. Needless to say, if you analyze the price will end above the strike price, you

will enter call trade, whereas if you analyze the price will below at option expiry,

you will enter put trade.

Unlike other markets when trading binary options you only have to predict either

the price will move above or below certain price (Strike Price). Usually in other

markets apart from predicting the direction you also have to identify the degree

(or the measure in points) by which the price would move. This makes binary

options trading really simple.

Each asset has different peculiarity, your research or analysis method might vary

from asset to asset or from one asset group to another. Economic condition,

Trends, Technical analysis and news releases are just a few methods could be use

to form a trading bias.



2.4 Expiry

Binary options have different expiration times, ranging from 1minutes to a month.

Expiration times facilitate all type of trading style either short-term (day trading),

medium term or long term.

Day trader’s wants to quickly get in and out of the market with small profit or loss

from individual trades, these high frequency trades could accumulate large

profits. Medium term or longer term traders might set the expiry to 1 hour to

couple of weeks.



2.5 Determine Your Investment

Determining your investment is one of the most important aspects of trading

binary options and is also the most overlooked aspect of trading. Money

Management rules help protects our equity and also generates long-term

profitability. Trading without sensible money management rules is like playing

Russian roulette. The chapter on “Money Management” elaborately explains how

to determine your investment and manage your risk more sensibly.



3. Fundamental Analysis



3.1 Introduction

Fundament analysis is a form of analysis in which general economy, and factors

that affect supply and demand are analyzed to make trading decisions. In simple

terms it means that we study the health of the economy and if the economy

seems to be in good state then its currency value will appreciate. The chief reason

for this is that other counties and investors will have more trust in that country

and additional capital will flow to the economy.

A fundament analyst can focus on everything such as overall health of the

economy, economic releases, IR (interest rates), earnings, and production.



3.2 Overview of US Economy

When studying fundamental analysis it is important to have at least a brief

knowledge of how an economy especially United States economy works as USD

(United States Dollar) is major currency.

According to Investopeida.com economy could be defined as the following:

"The large set of inter-related economic production and consumption activities

which aid in determining how scarce resources are allocated. The economy

encompasses everything relating to the production and consumption of goods

and services in an area."

United States Economy is the largest economy in the world which is often

referred as free market or capitalist economy. In a free market economy

businesses are controlled by private sector (non government) including

production and distribution of goods as well as services. Moreover in free market

economy prices are set by supply and demand. Free market or capitalist economy

is opposite if planned or socialist economies in which manufacturing and

distributions of goods and services are done as well as prices are set by the

government.

Practically United States economy is blended economy as the government does

handle some of the tasks which cannot be passed to private sector such as

military, road building, education and law enforcement.

It is important to understand that people usually prefer capitalism and free

market economies therefore any move toward capitalism will generally result into

market rally whereas move away from capitalism will be sensed by market as anti

business and markets generally sell off.



3.3 Monetary Policy and Fiscal Policy

Fiscal Policy

Fiscal policy is any policy relating to government spending and taxation. Due to

different reasons the economy under goes repeated growth and contraction

which can be broken down as the following.

1) Contraction

2) Trough

3) Expansion

4) Peak

(image source: Wikipedia.org)

Fiscal policy is an effective tool at government disposal in regulating the business

cycle. Government spending and taxation must be approved by both congress and

the president.



Monetary Policy

Monetary policy is the process by which Federal Reserve in case of United States

or monetary authority, central bank, or government of a country controls the

following:

1) Supply of money

2) Availability of money

3) Cost of borrowing money (Interest Rate)

These policies are set in order to achieve set of goals which are oriented towards

stability and grown of the country’s economy.

Interest rate and total supply of money have great impact on economy. Monetary

policy is said to be contractionary if it reduces money supply or raises IR (Interest

Rate). Whereas, expansionary policy is used to tackle unemployment, this is

usually done by lowering the interest rate in inflation.



3.4 Balance of Payment

In long term stream of money from international trade, speculation and

investment eventually decide the value of a country currency. When there is an

increase in demand for export products of a country and/or investment

opportunities look attractive to foreigners then all else being equal they currency

should appreciate.

Trade Flows

Flow of money in and out of a country due to global trade or commerce is called

trade flows. In simple terms it means that money flow from the importing country

to exporters’ country for the goods and services being delivered.

When a state imports goods this add money of the importing country to the

market and generate demand for the currency of the exporting nation. This is due

to the fact that goods are usually purchased in the currency of the country where

they are manufactured or produced, so the country importing the goods must

exchange their currency.

Capital Flows

Flow of capital (money) as a result of investment into and out of countries is

called capital flow. As in previous topic we discussed flow of capital as a result of

international trade however capital flow results due to money flow due to

investments such as stock and bond market, real estate and cross boarder

acquisitions and mergers.



Current Account

The formula for calculating the current account for a country is as following

When describing imports and exports you will often hear about current account

surplus or a current account deficit. When a value of country exports are more

than they are importing is known as current account surplus. Current account

deficit is opposite of current account surplus. A country with current account

deficit will generally have a weaker currency, this means that the country is

importing more than it is exporting and the money flow out of the country.

Capital Account

The general formula for calculating the capital account is as following:

Ownership of foreign or domestic assets refers to things such as real estate,

foreign and domestic companies’ investment and cross border mergers and

acquisitions. Portfolio investment refers to investment in stocks and bonds.

Whereas, other investments includes investment in loans and bank accounts.

As we discussed in our lesson on capital flows, when a market in a country is

outperforming the markets in other areas of the world, money will flow into the

country from foreigners seeking to participate in those out sized returns. These

capital flows are reflected in the country's capital account. This is the case



whether we are talking about a country's stock market, bond market, real estate

market etc.

Countries with aggressive inflows or outflows of funds have straight influence on

its currency. If other things are kept constant then a country with major inflows

create demand for the currency resulting into the appreciation in the value of the

currency.

Balance of Payment

In simple terms balance of payment refers to sum of all the transaction by a

country with rest of the world. By using balance of payment as an indicator Forex

traders can achieve immense imminent into the potential future price action of a

country’s currency.



3.5 Economic Releases

It is important for a trader to understand major economic releases and their

impact on trading. There are numerous economic releases that are published

every day to cover each economic release will be out of the scope of the book

however some basic economic are briefly touched below.

Gross Domestic Product

GDP which is also referred as Gross domestic income (GDI) is a gauge of national

income and output of any countries economy. For this reason trader and other

market participants closely watch Gross Domestic Product Number (GDP).

High rate of growth is a good indicator for the economy but if markets anticipate

that the growth is not sustainable without excess inflation, participant might

reach negatively. You can read the analysis from different sources including

Bloomberg.com and dailyfx.com are best services available free of cost.

Non Farm Payrolls

Non Farm Payrolls (NFP), economic release is public each month on first Friday at

8:30. NFP is released by the Bureau of Labor Statistics in United States which is

meant to show the number of jobs added or vanished in the economy over the

period of one month. As the name implies NFP does not include jobs concerning

to farming industry.

When business are hiring people this means they are optimist about the future

health of the economy. This is expressed in form of NFP.



4. Technical Analysis



4.1 Introduction

Study of price movement by analyzing historic price action usually in the form of

charts is called technical analysis. Trader usually looks at price action usually in

chart form and anticipate future price of the instrument.

A technical indicator is a form of chart plotted using mathematical formula which

is derived from the price and/or the traded volume of the financial security. The

graphs are usually above or below the instrument price and are helpful in

forecasting future price movement of the instrument.

Technical indicators can be classified into two broad categories that is lagging and

leading indicators.

Leading indicators are calculated in an effort to anticipate the future movement

of price. As leading indicators try to measure price movement from recent data,

these indicator are prone to errant signals and it is usually recommended to use

such indicators when there is no clear trend in the market.

Lagging indicator pay emphasis on where the market has been and therefore

what will be the future price. Lagging indicator produce least errant signal but at a

cost of delayed entry. Lagging indicators are believe to work better in trending

markets.



4.2 Japanese Candlestick

Candlestick charts plots price against time. Each candle represents Open, High,

Low and Close (OHLC) of an instrument at a particular time. If the open price is

less than the close price this means for the particular time there was appreciation

in the value and the candle is usually un-shaded or green.

If the close price is less than the open price this means for the particular time the

value of the instrument is depreciated and the candle is usually represented by

shade or red color.



4.3 Support and Resistance

Support

Support is the price level where the price action tends to find a support for falling

further. At this level there is enough demand from buyers to keep the price from

declining further.

Resistance

Resistance is opposite of support. If the price level of a particular instrument

where there is not enough demand from the buyer to keep the price to surpass

this level.

There are numerous ways to determine support and resistance. One basic way for

identifying support and resistance (S&R) is by analyzing the chart to see were the

price hit a particular level multiple time without breaking it and retraces back. If

the price touches the support or resistance multiple time without breaking it the

more strong the support or resistance becomes.

A very basic strategy that traders use to trade using support and resistance is they

buy at support and sell just before the resistance level.



4.4 Trend Lines

Trend lines are another most commonly used technical analysis.

In its basic form, traders draw a line below the price in an uptrend (when the

prices are moving upward) in order to identify support areas (valleys).

Where as in downtrend (when prices are moving down) trader draw a line above

the price to identify peaks (resistance areas).



4.5 Channels

Channels are created by drawing a parallel line at the same angle of the trend

line.

To create an ascending channel (when prices are moving upward), we have to

simply draw a parallel line above the price at the same angle of the upward trend

line.

To create a descending channel (when prices are moving downward), we have to

simply draw a parallel line below the price at the same angle of the downward

trend line.

The channel also shows the range at which the price fluctuate when in an uptrend

or down trend.

Following chart shows how channel are created in an uptrend, downtrend and

sideways (when there is no clear trend and the prices are range bounded.



4.6 Common Chart Indicators

Moving Average

There are different types of moving averages. Moving averages are plotted on

price chart and smooth out the price action of the security on which it is plotted

by simply taking average of number of periods.

Moving averages are used better representation of long terms direction and filter

out market noise (slight fluctuations in price). In addition moving average can be

used to identify positional support and resistance levels.



MACD (Moving Average Convergence Divergence)

MACD (Moving Average Convergence Divergence) is an indicator which is used to

indicate a new trend, either upward (bullish) or downward (bearish).

MACD chart usually have three sub-indicators which include the following

The first is the faster moving average.

The second is the slower moving average of the first one.

And the third is the number of bars which is used to calculate the MA of the

difference between the faster and slower MA (moving average).



RSI (Relative Strength Index)

RSI (Relative Strength Index) is an indicator which is used to identify overbought

or oversold conditions of the financial instrument. RSI chart has value from 0 to

100. Normally, if the indicator line is below 20, this indicates oversold, while the

value above 80 means overbought.



Bollinger Bands

Bollinger bands are indicator which is plotted on price chart and is used to measure market

volatility. When the market is not trending and volatility is declining the band contracts. When

there is high volatility in the market the bands expand.



Parabolic SAR (Stop and Reversal)

Parabolic SAR (Stop and Reversal) is very basic indicator. It simply plots dots below the price if

it is trending up or above to indicate potential reversals in price movement and vice versa. It

generally believed that Parabolic SAR works better in a trending market.



4.7 Multiple Timeframe

Multiple timeframe analysis means incorporating more than one time frame into

your trading strategy. This gives you edge and ensure you do not trade with trend

against larger timeframe which might change trend of the shorter time frame.

Once you found entry signal in you preferred timeframe it is recommended to

make a strategic decision to go long or short based on the direct of the trend of

upper timeframe.

Follow chart shows how to incorporate multi timeframe analysis into your

trading.

1 Hour



5 MIN



DAILY

After analyzing these charts we see the pair is in a down trend in 5 minute and the

hourly chart however when we move to daily chart it shows not only strong but

also an extended uptrend. Therefore it is generally accepted by trader not to

trade against large timeframe trend.



5. Money Management



5.1 Introduction

Money management is one of the most important aspects of trading and is also

the most overlooked aspect trading. Money Management rules help us protecting

out equity and also make us profitable in long run. Trading without sensible

money management rules is merely playing Russian roulette.



5.2 Learn To Protect Capital First

The primary goal of successful trading is the safeguarding of capital. In order to

explain how difficult is to get out off losses there is an example shown below:

Let’s assume a trader started with $10,000 and go down by $5,000. The

percentage of capital he lost is 50%. Now in order to get out of his losses and to

breakeven even he need to made 100% return on $5,000. In order words he has

to be twice as successful to cover his draw down.

It is important to incorporate sensible risk management into trading. This can be

achieved by never risk more than 2% of your available equity on a single trade.

Dr Alexander Elder stated as following in his renowned book “Trading for a

Living”.

“Many studies have shown that trading strategies and traders who risk more

than 2% of their overall trading capital on any one trade are rarely successful

over the long term. From what I have seen most traders risk way more than this

on an individual trade basis, another large contributor to the high failure rate

among traders.”



5.3 Position Sizing

Position sizing is the main topic for money management and vital component for

successful trading. Position sizing strategy can be classified into two broad

categories martingale and anti martingale.

Martingale is a strategy for position sizing which increases the trade size as the

trade suffer draw down or after a losing trade. Anti-martingale strategy is

opposite of martingale strategy, which increases position sizing after winning

trade or when the trade moves in trader favor.

Fixed Investment Size

Many traders make the mistake of choosing an arbitrary number such as $10,

$20, $50 per trade or so on when they take first step toward trading. Using fixed

investment sizing has many disadvantages, among is fixed lot sizing does not

allow a trader to trade large amount on trades with high chances of winning and

lower the trade investment on lower probability of success.

% Risk Model

The next level of sophistication in determining your position size is by using

percentage risk method. In % risk based model investment amount is determined

by the risk on each trade in provisions of a percentage of your capital. As we

looked in our previous topic that traders who risk more than 2% of their capital on

any one trade are usually not successful overlong run.

For instance if a trader has $100,000 in his trading capital and identify from his

historic analysis of the strategy that 2% or $2000 of his trading capital is an

appropriate amount to risk per trade.



5.4 Common Mistakes

Never Risk More Than 2% Per Trade

One of the cardinal rules which is also the most desecrated rules in trading is that

traders lose substantial amount of their account equity in one single trade by

taking too much risk. You will find hundred of stories of traders who lose years of

profits on a single trade that goes terribly wrong. This is the chief cause why the

2% stop-loss rule should not be violated.

The table below demonstrates that large losses are extremely difficult to overcome

Amount of Equity Loss Amount of Return Necessary to Re-store to Original

25% 33% 50% 100% 75% 400% 90% 1000%

Let’s assume you begin trading with $10,000 and loss 50% of your capital which in

dollar terms is $5000. So in order to breakeven and overcome the losses you now

need 100% gain of on your remaining equity. The best way to avoid this is to have

proper risk management and to avoid large losses. For this reason the 2% rule

hold utmost importance in trading. If you limit 2% loss per trade this means that

you can sustain 10 consecutive losing streaks in a row with a total draw down of

20% of you account equity.

Logic Wins, Impulse Kills

Trader blew up their account more by trading impulsively than by any other

mistake. If you ask a beginner trader the reason for taking a long position on a

currency pair, you might hear the answer, “Because it has gone down enough – so



now it’s bound to go positive.” This is an example of impulsive trading and

wishful thinking; the trade decision is not based on a logical reason.

Trading impulsively is merely playing the game of Russian roulette. Logical trading

is extra precise than impulsive trading.

Trading impulsively is simply gambling. It can be a huge rush when the trader is on

a winning streak, but just one bad loss can make the trader give all of the profits

and trading capital back to the market. Logical trader will know price dynamics

and reversals, whereas impulsive traders are only one trade away from

bankruptcy.

Adding To A Loser

Most of the time trader increase their risk and keep on adding to them if trade

goes against them. This is a martingale technique in which traders desperately

hope that a reversal will occur and their losses will convert to profit. However

doing so increases the exposure while the trade goes in loss. In such scenarios a

smart trader will typically close the option or let it expire and head toward next

trade.



6. Putting It All Together



6.1 Creating A Business Plan

Many business fail due to their lack of planning and failure to create a business

plan to follow. Creating a business plan give the trader a sense of direction that

they are trying to reach. It set goals, and plan to execute. Most successful traders

will agree that trading is not different than business and in order to be successful

in trading you should have clear and written business plan.

Following are some of the things which should be included into your business plan

for trading.

What are your reasons for which you want to become a trader?

What do you hope to achieve from trading?

Be specific here. If the possibility of making a lot of money has drawn you

towards trading then list out how much money you want to make from

trading and what you plan to do with that money if you make it.

What are the things that are going to separate you from the large majority

of traders who fail?

What are your biggest weaknesses?

How do you plan to address your weaknesses and leverage your strengths?

How much time can you devote towards actively following the market?

Do you plan to day trade, swing trade, position trade or a combination of

the three? Does your choice here reflect the time you have to devote to the

markets?

What market or markets do you plan to trade and why?

At what times throughout the day are you going to spend actually trading,

researching trades, and then learning about the market?

What are your criteria for entering a trade?

What are your criteria for exiting a trade?

What is your money management strategy?

How will you know if one of the pieces of your strategy stops working?



After identifying that one of the pieces of your strategy has stopped

working what will you do to address it?

What trading software and equipment you will use to trade and how much

is it?

What Broker/Brokers will you use?

Do you plan to add money to your account and if so where is that money

going to come from?

If you are profitable do you plan to reinvest profits or withdraw some or all

of them?

If you plan to trade full time how you will support yourself if you aren’t

profitable right away.

How much money do you plan to start to trade with? Does the math work

out when considering taxes, all costs, living expenses and your initial

trading balance?

Those who take time to think about and write down the business plan under

these heading generally have a higher chance of success.



6.2 Maintaining A Trading Journal

There is an old saying learn from your mistakes, for traders it mean to maintain a

trading journal. Successful trader looks at each experience or loss as a chance to

learn and grow. Trader openness to leaning from their trades differential

profitable and unprofitable trader. A trader should be willing to put effort to

prepare a document for recoding his trades and from time to time review each

trade.

Trading journals could be used to document trades. You can simply write down

details of your trades in a notebook or a word document. However using spread

sheet software like (excel) provides you more flexibility and handy analysis

options.

Below are 10 things that in my opinion it is important to document about each

trade. :

1. What were the market conditions for that day or trade?

2. Why you take the trade, entry date, Expiry and price.

3. Was the trade short terms or long term?

4. Comment on market condition from the time you entered till you close the

position.

5. Money management rules that used for the trade.

6. If possible attach a chart with your analysis.

7. Address you weakness for the particular trade or day.

8. Address your strength for that day or trade.

9. You can also add additional comments which you though might be help

full.



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